Fiscal cliff deal to drag on U.S. economy next year, ING forecasts

The U.S. will mostly avoid the fiscal cliff, but a combination of higher taxes and lower spending from an expected compromise in Washington will hurt gross domestic product by 1% to 1.5% in the coming year, forecasters from ING Investment Management said Tuesday. Even with that impact, the U.S. GDP should still grow by 2% to 3% in 2013 as the housing market recovers and earnings from companies in the S&P 500 Index grow by 5% to 7%.

Paul Zemsky, chief investment officer of ING U.S. Investment Management, said the U.S. won’t fall off the cliff. “While the U.S. clearly needs to tighten its belt, we believe the fiscal cliff will not happen,” Zemsky said. “We believe some sort of compromise will be reached.” Zemsky said he expects an end both to the payroll tax holiday and to the Bush tax cuts for the highest brackets.

Hurtsellers and Zemsky said the U.S. housing market continues to be a bright spot in the U.S. economy. As housing prices rise, the financial sector will be boosted by the increased value of real estate collateral in their portfolios.
Zemsky said emerging market equities and U.S. value stocks look particularly attractive, and stocks look cheap relative to bonds. ING currently has an overweight rating on U.S. financial stocks.

The economy appears to be stabilizing in Europe as well, as fiscal measures take effect. “The time to be underweight on European equities is past,” Zemsky said.

Hurtsellers said Wall Street has been factoring in uncertainty over whether Ben Bernanke will continue as chairman of the U.S. Federal Reserve after his term is up in 2014, but “it doesn’t appear that Obama will pick someone who will dramatically shift” current policy at the central bank. Talk has been centered on Janet Yellen, the vice chairwoman of the Federal Reserve, as a possible successor to Bernanke, she said.

This copy is for your personal, non-commercial use only. Distribution and use of
this material are governed by our
Subscriber Agreement
and by copyright law. For non-personal use or to order multiple copies, please contact Dow Jones
Reprints at 1-800-843-0008 or visit